[THE INVESTOR] While there may not be any funding shortage for impact investments in Korea in the coming years as the government has pledged a 100 billion won (US$92.24 million) fund, some in the field have mixed feelings.
“It could be the much-awaited rain or just a drizzle,” said Han Sang-yeob, CEO and managing partner of Sopoong, a leading social venture accelerator in Korea, in an recent interview with The Investor.
Sopoong, which stands for Social Power of Networked Group and means "picnic" in Korean, was created by founder of the country’s leading portal Daum Communications, now Kakao, Lee Jae-woong in 2008, and invests in early-stage social ventures that aim to achieve double the bottom line of startups.
Han admits that the government’s initiatives in impact investment can be a catalyst to attract more interest from the private sector and raise awareness on how social ventures could impact society.
His main concern is that the efforts are still government-driven, as it was a decade ago when the Korean Social Enterprise Promotion Act was implemented to support businesses that generate social change.
Another concern is that the abundant funds are likely to outnumber the number of good social ventures.
“Finding good social ventures is the most difficult part,” Han said. “The pool itself is quite small in the first place and there are not many that can scale up to create a bigger impact.”
Han, a serial social entrepreneur, became CEO and managing partner in 2015 after almost 10 years of running his own business.
“Our goal is to find and invest in social ventures that can scale up, just like Socar,” he said.
Sopoong invested in Socar, the country’s largest car-sharing service -- now valued at 440 billion won -- in the early stage and has since sold some stake.
While it may be challenging to find many startups that can scale up like Socar, Han said, companies like Shuttle Tayo and Easy and More can grow to that level.
Shuttle Tayo is a shuttle bus sharing service provider catering to hagwons -- for-profit private institutes, academies and cram schools.
“There are so many hagwons and they have a lot of headaches managing shuttle buses for children,” Han said. “At the same time, Shuttle Toyo provides safer options with high quality management of its buses and drivers.”
Easy and More, a two-women company that sells menstrual cups, is another social venture Han believes has the potential to create an impact that can scale up. The company began by sending free sanitary pads to teenage girls from low-income families and selling menstrual cups -- rare in Korea. Backed by a cloud-funding project, its own products will hit the market this month.
“This company has already created some impact by giving a new option to women and I believe they will continue to do so when the company’s own menstrual cup, Korea’s first-ever, hits the market,” Han added.
The followings are experts from the interview with Han.
The Investor: You have been this field for about 10 years as a social entrepreneur and now as an impact investor. What kind of changes have you observed?
Han: Compared with 10 years ago, social issues such as aging, inequality, environmental damages and North Korean issues have deepened further, while solutions have not kept pace.
Social economy occupies about 1.4 percent in Korea while in European countries it’s 5-10 percent. Narrowly speaking, now there is a wider awareness that social ventures could solve social issues. Seongsoo, where Sopoong is located, is one such evidence. It is home to some 250 social ventures and impact investors like Heyground Investment.
TI: How do you assess the government’s role in promoting social ventures?
Han: The newly established Ministry of SMEs and Startups is trying to promote social ventures. It is also unveiling a huge fund for related activities. The government has played an important role. But I hope more in the private sector get involved in investing in social enterprises.
The government has been promoting social ventures by issuing a certificate since 2007. But I think the program is problematic and it should be discontinued. It was useful in the beginning to attract some attention to the concept of social ventures but has now become a burden. Instead of a certificate, an approval for social business would be a better option to make the market more active.
The government-led social venture incubator system also isolates social ventures to some extent. They are trapped in other social ventures in one space but they should interact with other non-social companies.
TI: Please introduce Sopoong’s portfolio.
Han: Sopoong has invested in 30 social ventures since it was established in 2008. Of the 30 ventures, two have closed and 34 percent of them received follow-up investment. The total valuation of the companies it has invested in has reached 420 billion.
TI: Your portfolio includes many businesses based on sharing economy. Why is that so?
Han: A business model based on sharing economy often has an impact that can be scaled up. In the process of growing the business, social awareness on the issue also grows.
According to research, one sharing car can get rid of 12 cars on the street. This is a big impact. I understand people worry about carmakers, which contribute a lot to the economy. But innovation entails some shocks. We have to gauge which has a greater impact? A shock or benefit from innovation? Whatever methods lead to a better society, we should go for innovation at the cost of some shocks.
TI: Why is your valuation fixed at 30 million won for an 8 percent stake?
Han: Our main purpose is to provide some time for social ventures to test their business ideas. Half of the companies we invest in do not even have a legal entity, which makes it difficult to measure the valuation. So we want to save time and instead once having invested, Sopoong staff try to meet with companies quite often -- at least once a week at the beginning -- and help their development and possibly pivot if necessary.
TI: What is your plan for overseas companies?
Han: So long as it creates bigger social values, we’d go for it. It doesn’t have to be limited to Korea. It is true that the return on investment and impact would be bigger in Southeast Asia and Africa, but at the moment we do not know much about those regions.
By Park Ga-young (email@example.com)